In the early 1990s I worked as a private consultant and interpreter for American business people visiting the former USSR. My employers, many of whom became my personal friends, were looking for business opportunities, which at the time seemed abundant — even to me. I knew that government corruption existed, but the real scope of the disastrous legacy of Soviet socialism was only revealed to me when our travels exposed me to situations and facts I would not have otherwise known. To make matters worse, government corruption, incompetence, and the attempts to take advantage of my American friends were disguised with the fig leaf of fairness, caring for the workers, and protecting their wages. It was practically a matter of habit; sometimes I wondered if the crooks themselves knew where the cynicism ended and the caring began.

None of the proposed joint ventures came through because of government officials’ absurd demands for kickbacks combined with the requirements of Western-style wages for the workers at a time when the average cost of living in Ukraine was about $50 a month for a family of four. Like children on Christmas Eve, the bureaucrats were holding their breath in anticipation of foreign gifts, exorbitant junkets, no-show jobs, and ready-made factories with salaries equaling those in Europe and the U.S., without realizing that cheap local labor and low maintenance were their only edge and their only chance in the world economy.

In the meantime, factories continued to close, in part because no one wanted to buy their crude products designed for the Soviet market. The economy was crumbling, half of the country’s workforce was unemployed, and even a monthly wage of $50 would have been an improvement, at least until things would pick up.

It was then that we visited the unsmiling woman director of the local sewing factory with a proposal to make jeans from the locally made hemp cloth for a Californian store chain. Keeping a poker face, she gave us a production cost estimate per item that equaled their retail price in an American thrift store. That made no sense, given that in local terms the cost was higher than her average worker’s weekly earnings. She was lying and we diplomatically asked her to reconsider. The director, who in Soviet times used to be the equivalent of a U.S. congresswoman, looked us sternly in the eye and repeated that such was the real cost and it was final. We didn’t even get to the part where we could gripe about the quality of her products.

At least she didn’t ask for a cushy job for her niece right up front like some others did. Every encounter was different; the attitude was almost always the same. One by one the frustrated Americans went home empty-handed, leaving the local officials complaining about the greedy Yankees. I sincerely hope that the business climate has improved since I left the country. But at the time, the solicitations of kickbacks aside, the indignation at the prospect of capitalist exploitation seemed genuine — at least on the part of former party bosses.

The gap between Western and local wages was painful and incomprehensible to most Soviets, whom the fall of the Iron Curtain suddenly exposed to the real world. Whatever inequality existed between them and the party elites was now dwarfed by the wealth of American middle-class visitors. The bureaucrats seemed to resent the fact that private U.S. citizens, obviously standing on a lower societal rung because they didn’t hold privileged government jobs, could easily travel around the world, launch projects without any government supervision, act like equals with anyone they spoke to, and pay for a single dinner with a few guests at the local restaurant costing almost as much as their betters in the local government earned in a whole month.

18 Comments, 18 Threads

1.
Mr. Independant

Oleg,
I think you touch on a very important point but unfortunately don’t seem to understand it.
Yes macro-managing an economy for whatever reason (like “fairness”) historically has been harmful to the productivity of that economy and it’s workforce. China, India, and the USSR proved that with their attempts at centrally planned economies. However, history has also shown (most recently in the US) that economies must be regulated. The current world-wide recession was caused in large part by deregulation. The central point you make in your article is half correct, in that the removal of all government regulation from the economy will increase it’s productivity but it will be at the expense of it’s workforce. A perfect example is Mexico. Mexico has the 11th largest economy in the world and is one of the most economically libertarian countries in the world, yet over 50% of their citizens live in poverty. There is a good middle ground. The elimination of corporate taxes, strong regulation of business, and active participation of the workforce in organized labor. These things will allow the economy to grow without harming the workforce. Oleg you left the nonsense of communism in your past you should now leave the nonsense of libertarianism in your past as well.

Oleg – another great article. Thanks for your analysis and expertise on the subject.

Mr. Independent – you are again mistaking correlation for causation. Mexico is not ‘one of the most economically libertarian countries in the world’;it ranks 3rd out of the three N. American countries (and there are only 3)and the 49th most free in the index..BUT..your focus on single issues as causal rather than correlative, throws a wrench into your conclusions.

You are ignoring that economies are not simple but complex; that means that many factors play a role in their status. In Mexico, these include the fact that its economy is essentially embedded within that of the US and thus, Mexican citizens and govt need not put money into infrastructure devt, into research and devt; into factory construction, into services for the whole population.

You ignore that it has offloaded its poorest workers into the US workforce; that this fact results in billions of income to support the ‘back-home’ poor who are ignored by the Mexican govt. You ignore that corruption is epidemic in Mexico.

And you ignore the ‘rigid labor regulations’…remember, your insisting that Mexico has no labor unions, which is untrue..and these regulations inhibit economic devt.

I think that unrestrained Capitalism gobbles up everything in it’s path even competition and leads to large conglomerates that leave little room for innovation, entrepreneurship, and small business. I think that the Soviet Union never has a problem with a business relationship with the United States. They have more of a problem with our Constitution and Bill of Rights which leads to more prosperity for more of the population by not allowing the “few” to use the many, since we are are as individuals endowed with certain inalienable rights.

That I think is what the Soviet leadership fears the most from the United States, not our bombs, but the bones of our government by the people for the people, where after a long hard struggle the many are fleshing out the words that gave the most people the opportunity to advance because we have been created equal by our Creator not by other men or by the state.

We are not the unwashed masses but given dignity by our individuality and act as a group for the common good and the common man.

Mr. Independent: The greater portion of misunderstanding belongs to you. For example: “The current world-wide recession was caused in large part by deregulation.” is in a very large part incorrect. Not deregulation, but OVERregulation – the forced giving of mortgages to unqualified people, for example – played a greater role in our current mess.

” A perfect example is Mexico. Mexico has the 11th largest economy in the world and is one of the most economically libertarian countries in the world, yet over 50% of their citizens live in poverty.”
Mexico is a perfect example of a corrupt state which may be “libertarian” in theory, but in practice runs on bribes and kickbacks. A very poor example to use to make your point.

Lynn: Unrestrained capitalism does not crowd out innovation and small business. Just look around at the companies that started out in someone’s garage: Think Apple, Microsoft and H-P. They kicked almighty IBM off the top tier. Now new ideas like “cloud computing” are threatening the once formidable Microsoft juggernaut. Blogs and online services are kicking the tar out of hundred year old newspaper companies. Eventually, capitalism self-corrects it’s errors. Not too many years ago, a GM exec proclaimed “What is good for GM is good for the country”. They believed they had a lock on the American market, and chose not to innovate. Now they are bankrupt, with no one to blame but themselves. Capitalism punished them for their arrogance, while providing the consumer with a choice in high quality automobiles that was unthinkable not too long ago. Don’t lose any sleep over restrictions on innovation and opportunity. Capitalism will always find a way. Instead, worry about this: What will our government do to coerce us into buying “Government Motors” cars?

It is government over-regulation, not dominant companies, that make start up costs and barriers so high.

Capitalism isn’t perfect, and neither is our republican form of government. They are simply the least evil of all the alternatives.

@ Mr. Independant – “The current world-wide recession was caused in large part by deregulation”

I’m afraid that’s part of the fairytale we’re getting from media invested in progressive ideology.

The root cause of this latest debacle was the Community Reinvestment Act, which makes it a case of OVER-regulation, not deregulation as you put it. Had the banks been allowed to follow their interests, they would never have made the bad mortgage loans to begin with. Instead, the government began dictating policy to businesses guided by political correctness. That is the opposite of deregulation.

“The only thing that is certain to start growing as a result of this measure will be the power of the coming global government, whose first major task will be to tackle a self-inflicted global crisis.”

A mystery wrapped in an enigma on a global scale.

What did that famous author of fantasy write?

One Ring to rule them all,
One Ring to find them,
One Ring to bring them all
and in the darkness bind them.

4. Robert F:
“Capitalism isn’t perfect, and neither is our republican form of government.”

And as long as delusional people continue to think they are going to wrestle “perfection” out of the universe they will be sorely dissappointed every time, and we will all suffer greatly for their delusion.

To further counter Mr. Independant, the current crisis was not caused by ‘deregulation’. It was caused by politicians keeping the regulators from regulating.

Plenty of people knew that there were problems, that was was going on was foolish and fiduciarily illegal. But when the Securities and Exchange Commission folks and the Housing department folks tried to put a stop to it using their regulatory powers, they got hauled before Congress and shut down. (You can see these hearings on YouTube and in various linkings.) President Bush and even John McCain tried to stop it in 2001, 2003, 2005, and 2007 but were each time stymied by the threat of a unified Democrat filibuster led by Barney Frank and Chris Dodd.

Why? Because it was making money and getting money donated to Democrats and getting money sent to ACORN for Democrat voter turnout. So why stop it? Well, we know why now…

ETAB,
Yes Mexico ranks 49th in the world index of 193 countries. It has the highest rating of Latin America and almost all of the key indicators are above the world average. Also the number of regulators is a fraction of the US and the corruption of the government makes Mexico’s regulation a joke. So nice try.
As to your belief that I’m confusing correlation with causation and that I’m ignoring the complexities of an economy is simply not true. I noticed that in your first statement your cited the HF and proof of this, however the ranking actually supports my position. Remember Mexico is ranked as the 11th largest economy in the world. On your second point, you didn’t cite any statement I made to support your opinion, was that an oversight?
Now you quote that “you’re insisting that Mexico has no labor unions, which is untrue” is not a statement that I have ever made. I have stated that Mexico has virtually no organized labor in the private sector. You stated in a previous article the percentage of public/private union participation is “28%”; I’ve asked several times for you to provide proof that your quote is accurate, I’m still waiting.
Try to remember the point of my comment is not just the protection the economy but also the workforce.

Robert F, Patrick Sarsfield, & luagha,
If overregulation and the Community Reinvestment Act were responsible for the world-wide recession why did Bank of America completely avoid the sub-prime market. Your conclusions don’t stand up to scrutiny.
lugha tip of the hat to you. You’re absolutely right. That reminds me of a favorite saying:
What’s the difference between the DEMS and the REBS. A REB stabs you in the front and a DEM stabs you in the back.

mr independant. you are incorrect on your analysis. Oleg is correct you are not.

the economic crisis was a direct result of government intrusion (regulations and control) in the private free market capital system (basically no long a free market capitalist system by default of this intrusion) ..it is the liberals/socialists (mainly the democrat party) that created and oversaw the market crisis. (YES I KNOW YOU BLAME BUSH).

Bank of America was paying “protection” money to Acorn. As to whether or not they escaped the sub-prime …I don’t know, but they were in really bad shape and I believe still are. …so if it was because of sub-prime then what ??

to those who claim capitalism is a failed system ..show me one socialist system that is better. ..and if you can think of one why aren’t you living there ?

Mr.Independent – yes, you did say that Mexico has no organized labor – in Part II of Oleg’ series. And you did not use the qualifier ‘in the private sector’. You said “there is virtually no organized labor in Mexico’…several times. Again – NO qualifier of ‘private sector’. So, don’t try to get out of your original statements.

I’mnot supplying links to everything. You can look up the Mexican economy on your own and figure out the ratio of imports and exports with the US..and the illegal alien economy and the amount they send back to Mexico.

Please provide evidence that you are using a complex causality in your review of economies. You seem to focus on only one variable: unions.

By the way, corruption functions as its own rigid regulator.

And what does Mexico’s economic rank have to do with unions? You totally ignore its embeddedess within the US economy, its offloading of its poorest class to the US, its input of billions from those illegal aliens..

Excellent job Oleg, we need your perspective. My wife and her family is from Singapore, a country that raised its GDP per capita 100x in 40 years through smart economic policies. They sure don’t go around complaining about globalization.

Samson,
To your first point, no I actually don’t blame Bush. Unlike my misguided friends in the Democratic Party I don’t think Bush was corrupt, or cruel, or evil. Except for the last four months of his administration, he didn’t do anything that he did say he would. Bush told the whole country what kind of president he would be. The point is, that what Bush promised, what the country got, was libertarianism. Which is a joke. Unrestrained, completely unregulated markets produced the Great Depression and now the Great Recession. No one should be surprised.
As to your comment the BOA was paying ACORN protection money, prove it. If they were I’d like to know (if no other reason than because I’m a shareholder). I doubt that they were, otherwise why didn’t Chase, Citigroup, and Washington Mutual do the same? BOA public ’earning statements’ have consistently shown that they have not shown the same rate of default of mortgages as their competitors. If you have proof that this is false, prove it. The reason BOA almost failed (and needed 45 BILLION dollars of bailout money) was because of it’s forced purchase of Merrill Lynch.
Finally, what you fail to understand about my previous posts, is that I do believe the private free-market system but I also understand that the system must be properly regulated.

ETAB,
Actually I did use the qualifier “private sector“; And not just in Part II but also Part I, several times. I also stipulated that I oppose government employee unions. I’ve been very clear that my support for organized labor is only for the private sector.
Now is the reason you cannot supply a link to credible evidence in support your position because it’s only your opinion? By the way, that link you provided in your last post was a joke. I mean seriously, did you write that yourself. It was just a word document.
Your point that ‘corruption functions as it’s own regulator’ is absurd. Why would a business bribe a public official to regulate itself. Corruption functions as a regulation eliminator.
Mexico’s economic rank is relevant as a basis for my point that the elimination of regulation can be beneficial to an economy but it will be at the expense of it’s workforce. The interdependency of Mexico’s economy to the US is irrelevant. Globalization has ensured that all large economies are dependant with one another. Likewise the population that Mexico looses due to illegal immigration is also irrelevant due to the fact that Mexico’s social safety nets are minimal at best and non-existent at worst. And a few billion dollars of remittances are not enough to account for Mexico’s 1.5 trillion dollar economy.
So to sum up ETAB, you don’t know what your talking about, you’re ‘sources’ of information are a joke, and you lie about my posts. Did I miss anything?